The Private Equity Case Study: How to Ace Modeling Tests and Investment Memos

You receive an email on Friday at 6pm. Attached is a CIM, three years of financials, and instructions: "Submit your model and investment recommendation by Sunday at midnight."

This is the PE case study. It separates candidates who can think like investors from those who just know how to build models.

The stakes are high. A strong case study can secure an offer. A weak one can eliminate you from consideration—regardless of how well you performed in earlier rounds.

Here's how to approach PE case studies strategically, avoid common pitfalls, and demonstrate the judgment that gets you hired.

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The Two Types of PE Case Studies

The Take-Home Modeling Test

Format: 24-72 hours to complete Materials: CIM or information packet, financial statements Deliverable: LBO model, sometimes with investment memo or presentation

What it tests:

• Technical modeling ability
• Analytical thoroughness
• Time management
• Attention to detail
• Written communication (if memo required)

The Live Case Study

Format: 1-4 hours in-person Materials: Provided at start, may include company background, financials, and industry data Deliverable: Verbal presentation of investment recommendation

What it tests:

• Speed of analysis
• Prioritization under pressure
• Presentation skills
• Real-time thinking and Q&A handling

Both formats ultimately assess the same question: Can you evaluate a company as an investment opportunity and articulate a clear recommendation?

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The Take-Home Case Study: Step-by-Step

Step 1: Read Everything First (30-60 minutes)

Don't open Excel immediately. Read the entire information packet first.

On first read, identify:

• What does this company do?
• What industry is it in?
• What's the investment thesis supposed to be?
• What data have you been given?
• What's missing?

Take notes on:

• Key metrics and growth rates
• Obvious strengths and weaknesses
• Questions that need answering
• Potential value creation levers

This reading phase prevents wasted modeling effort. You'll know what matters before you build anything.

Step 2: Plan Your Model Architecture (15-30 minutes)

Before building, sketch your model structure on paper.

Essential tabs:

1. Assumptions
2. Income statement
3. Balance sheet (if required)
4. Cash flow / debt schedule
5. LBO returns
6. Sensitivity analysis

For each tab, identify:

• Key inputs needed
• How it links to other tabs
• What outputs matter

Common modeling scope decisions:

• Monthly vs. quarterly vs. annual projections
• How much detail in the debt schedule
• Whether to build full three-statement model
• How many scenarios to run

Simpler is often better. A clean, accurate two-tab model beats a complex, error-prone five-tab model.

Step 3: Build the Model Systematically (3-6 hours)

Assumptions first:

• Revenue growth rates
• Margin assumptions
• Working capital % of revenue
• Capex % of revenue
• Tax rate
• Debt terms (rate, amortization, covenants)
• Entry and exit multiples

Income statement projection:

• Revenue build-up (if bottom-up) or top-line growth (if top-down)
• COGS and gross margin
• Operating expenses (fixed vs. variable)
• EBITDA and EBITDA margin

Free cash flow:

• EBITDA
• Less: Interest
• Less: Taxes
• Less: Capex
• Less: Working capital changes
• Equals: Free cash flow available for debt paydown

Debt schedule:

• Opening debt balance
• Mandatory amortization
• Cash sweep (optional prepayment)
• Interest calculation
• Closing debt balance

Returns calculation:

• Entry equity (sources and uses)
• Exit enterprise value (Exit EBITDA × Multiple)
• Less: Exit debt
• Exit equity
• MOIC and IRR

Sensitivity analysis:

• Entry multiple vs. exit multiple
• Revenue growth vs. margin
• Leverage vs. returns

Step 4: Stress Test Your Model (30-60 minutes)

Before any analysis, verify the model works correctly.

Integrity checks:

• Does the balance sheet balance? (If you built one)
• Do the debt schedule opening and closing balances tie correctly?
• Do the returns make intuitive sense?
• What happens in extreme scenarios?

Reasonableness checks:

• Are growth rates realistic for the industry?
• Are margins in line with comparables?
• Does FCF conversion make sense?
• Are debt paydown amounts achievable?

Error prevention:

• Use consistent formatting (inputs in blue, calculations in black)
• Label every cell clearly
• Avoid hardcoding numbers in formulas
• Use cell references, not typed values

One error can cascade through the entire model. Find mistakes before the interviewer does.

Step 5: Analyze and Form Your View (1-2 hours)

With a working model, now think like an investor.

Key questions:

• What's the expected return? Is it attractive for the risk?
• Where do returns come from? (Growth, margin, multiple, debt paydown)
• What has to go right for this to work?
• What could go wrong?
• What's the downside case? Is it acceptable?

Build conviction:

• Run multiple scenarios
• Test key assumptions
• Identify the 2-3 things that matter most
• Determine your recommendation: Invest, Pass, or Need More Information

Articulate your thesis:

• In one sentence, why is this a good/bad investment?
• What's the primary source of returns?
• What's the key risk?
• What would change your view?

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The Investment Memo

Many case studies require a written memo. This is where differentiation happens. Anyone can build a model. Not everyone can write a compelling investment recommendation.

Standard Memo Structure

1. Executive Summary (1 paragraph)

• Company description
• Investment recommendation (Invest/Pass)
• Expected returns (IRR, MOIC)
• Key risks

2. Company Overview (1 page)

• Business description
• Products/services
• Customer base
• Competitive position
• Management team (if information provided)

3. Industry Analysis (0.5-1 page)

• Market size and growth
• Key trends
• Competitive dynamics
• Regulatory environment

4. Investment Thesis (1-2 pages)

• Why this is an attractive investment
• Primary value creation levers
• Expected returns and assumptions
• Comparable transactions and valuations

5. Key Risks and Mitigants (0.5-1 page)

• Top 3-5 risks
• Potential mitigating factors
• Downside scenario analysis

6. Conclusion/Recommendation

• Clear invest/pass decision
• Next steps for diligence (if invest)
• Key questions that need answering

What Makes Memos Stand Out

Clarity over cleverness: State your recommendation on page one. Don't bury the lede.

Specific examples: "Revenue grew 8% annually" beats "the company showed strong growth."

Honest risk assessment: Identifying risks shows judgment. Pretending risks don't exist shows naivety.

Supported conclusions: Every claim should tie to data or analysis. "I believe X because of Y."

Concise writing: PE professionals read dozens of memos. Respect their time. Cut every unnecessary word.

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Live Case Study Tactics

Time Allocation

In a 3-hour live case:

• First 30 minutes: Read materials, take notes, identify key issues
• Next 90 minutes: Build model, run analysis
• Final 60 minutes: Prepare presentation, anticipate questions

Don't try to build a complex model. Build something accurate that you can explain confidently.

Presentation Framework

Opening (2 minutes):

• Company summary
• Your recommendation
• Expected returns

Investment thesis (5 minutes):

• Why this company is attractive
• Value creation opportunity
• Key assumptions

Financial analysis (5 minutes):

• Model overview
• Key outputs
• Sensitivity analysis

Risks (3 minutes):

• Primary risks
• Mitigating factors

Q&A:

• Be prepared to defend every assumption
• Admit when you don't know something
• Show your thinking process

Common Live Case Questions

"Walk me through your model." Explain structure and key assumptions. Don't read every cell.

"Why did you assume X% growth?" Reference the data provided. Show your reasoning.

"What if the exit multiple compresses to 8x?" Know your sensitivity table. Discuss implications.

"Would you invest your own money?" Have a genuine opinion. Back it up.

"What additional diligence would you do?" Show awareness of what you don't know.

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Common Case Study Mistakes

Modeling Mistakes

Too much complexity: You don't need a full three-statement model. Focus on what drives returns.

Circular references: Interest based on average debt that depends on cash sweep that depends on interest. Break the circularity or handle it properly.

Missing debt paydown: The most common error. Don't forget that FCF pays down debt, increasing equity returns.

Unrealistic assumptions: 30% revenue growth and 10x exit multiple looks aggressive. Interviewers will question it.

Analysis Mistakes

No investment thesis: A model without a thesis is just arithmetic. Why is this a good (or bad) investment?

Ignoring risks: Every deal has risks. Identifying them shows maturity. Ignoring them shows inexperience.

Over-reliance on the base case: The base case never happens exactly. Sensitivity analysis shows you understand uncertainty.

Weak recommendation: "This could be good or bad depending on how things go" isn't a recommendation. Take a position.

Presentation Mistakes

Reading the slides: Know your material well enough to present without reading.

Defensive responses to questions: If your assumption is challenged, engage with the critique thoughtfully.

Inability to explain your model: If you can't explain a calculation, you'll lose credibility on everything else.

No preparation for obvious questions: They will ask about your assumptions. Have answers ready.

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Practice Strategy

Building Case Study Skills

Week 1-2: Model mechanics

• Build 5+ LBO models from scratch
• Focus on accuracy and speed
• Practice with different scenarios and structures

Week 3-4: Analysis and judgment

• Analyze real CIMs (available through various sources)
• Form investment opinions
• Practice articulating your thesis

Week 5+: Full simulations

• Time yourself on complete case studies
• Practice presenting your recommendations
• Get feedback from peers or mentors

Resources for Practice

CIM sources:

• Historical CIMs from completed deals
• Practice materials from PE recruiting guides
• Case study collections from target schools

Model templates:

• Use your own from scratch
• Don't become dependent on templates you won't have in the interview

Feedback sources:

• Friends in PE or banking
• School career services
• Mock interview services

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The Evaluation Criteria

Understanding how firms evaluate case studies helps you prioritize.

Technical Execution (Table Stakes)

Model accuracy: Does the model work? Are the calculations correct?

Appropriate complexity: Is the model appropriately detailed for the time given?

Sensitivity analysis: Did you test key assumptions?

Analytical Quality (Differentiation)

Sound assumptions: Are assumptions reasonable and justified?

Logical framework: Is the analysis structured and coherent?

Risk awareness: Are key risks identified and addressed?

Investment Judgment (What Wins Offers)

Clear thesis: Do you have a compelling view on the investment?

Commercial instinct: Do you understand what drives value?

Conviction: Can you defend your recommendation under pressure?

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What Top Candidates Do Differently

They start with the thesis, not the model. Before opening Excel, they understand what the investment case is. The model tests that thesis.

They focus on what matters. Not every line item needs detailed analysis. They identify the 2-3 things that drive returns and focus there.

They show judgment, not just calculations. Anyone can calculate IRR. They can explain why the IRR is or isn't attractive given the risks.

They present confidently but humbly. They own their recommendation but acknowledge what they don't know.

They prepare for everything. Every assumption has a defense. Every risk has been considered. Every question has been anticipated.

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Key Takeaways

The PE case study tests whether you can think like an investor. Technical skills are necessary but not sufficient.

Before the case:

• Read everything before building anything
• Plan your model structure
• Identify what matters most

During the case:

• Build simple, accurate models
• Test your assumptions
• Form a clear investment view

In the memo:

• Lead with your recommendation
• Support every claim with evidence
• Be honest about risks

In the presentation:

• Know your material cold
• Anticipate tough questions
• Show conviction in your recommendation

The best candidates don't just build models. They use models to answer the question every PE investor cares about: Should we invest in this company?

That's the skill you need to demonstrate. Everything else is just arithmetic.